Why The Ukraine War Won't Move The Clean Energy Needle

(March 15, 2022, 7:05 PM EDT) -- The Russian invasion of Ukraine has spurred further calls to embrace the transition away from fossil fuels, but clean energy industry watchers say political talk alone won't be enough to pick up the pace of development.

U.S. climate change advocates are pushing Congress to revive the clean energy portions of the stalled Build Back Better legislation, and there are even calls from environmental groups and Democratic lawmakers for President Joe Biden to use the Defense Production Act to scale up clean energy manufacturing. Meanwhile, the European Union has outlined plans to wean itself from Russian gas by 2030.

But until concrete policies backing such calls to accelerate the shift from oil and gas to clean energy are enacted, developers and investors will remain focused on short-term concerns, industry watchers say. Those concerns include ensuring projects can get permitted and financed, and fretting over already stressed global supply chains that could be further squeezed by the war.

"I think what people are thinking about is that this looks like another potential worldwide, disruptive force to putting projects together," said Holland & Hart LLP partner Ashley Wald, who focuses on U.S. renewable energy project development. "Right now, people are going, 'Oh no, just one more thing.'"

The calls for an accelerated energy transition in light of the Russia-Ukraine war is certainly a strong long-term signal for the renewable energy market, experts say.

"At one level, the war in Ukraine is taking some of the headlines and the focus off of climate change ... and the environmental, social and governance [investment] movement," said Lisa Rushton, who co-heads Womble Bond Dickinson LLP's energy and natural resources practice and heads its renewable energy practice. "Really in the long run, it really does play toward moving us toward renewable energy."

But that long-term signal is colliding with the reality of roiling global energy and commodity markets, most notably, wild swings in oil and gas prices due to the Russian invasion and retaliatory global sanctions that include U.S. and United Kingdom bans on oil and gas imports.

That tension is especially acute in Europe, which heavily relies on Russian gas, said James Glynn, a senior research scholar at Columbia University's Center on Global Energy Policy who studies energy systems modeling. The EU earlier this month outlined plans to slash reliance on Russian gas by two-thirds this year and end it by 2030 through massive clean energy development, but it would be up to each EU member state to carry that out.

"The uncertainty around what Europe is going to do around natural gas is a game-changer: what the power system will do, and what the other options are to operate the power grid," Glynn said. "It might end up needing more expensive technology sooner, like hydrogen or storage."

But clean energy projects still need to be permitted, and new technology still needs to be developed, Rushton of Womble Bond said. And that process was growing bumpier even before the Russian invasion of Ukraine, experts say.

Global supply chain disruptions due to the COVID-19 pandemic, among other things, started to hamper clean energy development last year, pushing back the completion dates of many projects. Inflation has compounded the supply crunch, as well as increased scrutiny over where project equipment is coming from amid U.S. moves to crack down on forced labor.

Experts say the war in Ukraine will only exacerbate supply chain issues and drive up project costs. For example, Russia is a major producer and exporter of raw materials used to manufacture renewable energy technology and equipment, including aluminum, nickel and cobalt. The U.S. hasn't yet imposed direct sanctions on Russia's metals and mining industry, but global metal prices surged following the invasion of Ukraine.

"There's a cost issue and there's a timing issue," Wald of Holland & Hart said. "A lot of people on the developer side, they just can't say with certainty when they'll get products and how much it will cost them to get it."

Experts say uncertainty would be eased if U.S. lawmakers passed the clean energy portions of the BBB legislation, which ran aground in the Senate last year. There was a bonanza of clean energy tax perks in the legislation, including extensions for the production tax credit and investment tax credit that have boosted the wind and solar power industries, tax credit eligibility for energy storage and electric transmission, and a direct payment option for the PTC and ITC that would essentially allow developers or investors to receive their tax credits in a lump-sum rebate.

Perhaps the Russia-Ukraine war will push Congress to enact those tax credit changes. Until then, the industry will make do with what's already on the books, said Craig Kline, the co-founder of Troutman Pepper's renewable energy practice.

"It's still a good statute, people are still transacting," Kline said. "It's all you can do."

--Editing by Kelly Duncan and Marygrace Anderson.

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